Hello, and thank you for standing by. Welcome to SPX Technologies Fourth Quarter 2023 Earnings Conference Call. At this time all participants are in a listen only mode. [Operator Instructions] I would now like to hand the conference over to Paul Clegg. You may begin.

Thank you, and good afternoon, everyone. Thanks for joining us. With me on the call today are Gene Lowe, our President and Chief Executive Officer; and Mark Carano, our Chief Financial Officer. A press release containing our fourth quarter full year 2023 results was issued today after market close. You can find the release and our earnings slide presentation, as well as a link to a live webcast of this call, in the Investor Relations section of our website at spx.com. I encourage you to review our disclosure and discussion of GAAP results in the press release and to follow along with the slide presentation during our prepared remarks. A replay of this webcast will be available on our website until February 29. As a reminder, portions of our presentation and comments are forward-looking and subject to Safe Harbor provisions. Please also note the risk factors in our most recent SEC filings. Our comments today will largely focus on adjusted financial results and comparisons will be the results of continuing operations only. You can find detailed reconciliations of historical adjusted figures from their respective GAAP measures in the appendix to today's presentation. Our adjusted earnings per share exclude primarily acquisition-related costs, non-service pension items, mark-to-market changes, amortization expense and a charge associated with recent legal settlement. Finally, we will be hosting an Investor Day on March 26th in New York. The event will be webcast. If you would like to attend in person, please send a request to our Investor Relations email at noted in at the end of today's press release and on our website. And with that, I'll turn the call over to Gene.

Thanks, Paul. Good afternoon, everyone and thank you for joining us. On the call today, we'll provide you with an update on our consolidated and segment results for the fourth quarter and full year 2023. We'll also provide our full year guidance for 2024. We had a strong close to the year. We grew adjusted EBITDA 50% and delivered adjusted EPS near the upper end of our guidance range. During Q4, we continued to execute well and saw robust demand continue across most of our end markets. Our HVAC segment in particular achieved excellent margin performance compared with very strong results in the prior year period. I’m proud of our team's accomplishments over the past year. We made great progress on our digital continuous improvement and sustainability initiatives. We also completed two strategic acquisitions in our HVAC segment that helps strengthen our positions in the attractive engineered air movement and electrical heating markets. Recently we made another significant addition to our HVAC segment, with the acquisition of Ingénia, a provider of high value custom air handling systems and broadens our growth opportunities and geographic reach in Engineering Air Movements. Looking ahead market conditions support continued robust growth for SPX and remain well positioned to continue our strong operational execution Today we are providing 2024 midpoint guidance for adjusted EBITDA growth of 25% and adjusted EPS growth of 16%. At the midpoint of $5 per share, our adjusted EPS guidance would achieve a key SPX 2025 target, a year ahead of schedule. Turning to our high-level results. For the fourth quarter, we grew revenue by 9.3% and adjusted operating income by 18.7% year-on-year for the 150 basis points of margin expansion. We ended the year with a healthy backlog, solid overall demand trends and positive operational improvements. As always, I'd like…

Thanks Gene. Q4 was another solid quarter for SPX Technologies. Year-on-year our adjusted EPS grew approximately 7% to $1.25. Full year adjusted EPS grew 39% to $4.31, near the upper end of our guidance range of $4.22 to $4.32. As noted by Paul, in addition to our typical items, our adjusted results for Q4 and the full year exclude the charge associated with the legal settlement. The after-tax impact to adjusted EPS was approximately $0.14. This was a highly unique isolated event related to a dispute with a former business rep. For the quarter, total Company revenues increased 9.3% year-on-year. Acquisitions drove the increase while organic revenue declined modestly, Fx was a slight tailwind. Segment income grew by $12.3 million or 13.6%, $102.8 million while segment margin increased 80 basis points. For the quarter in our APAC segment, revenues grew 14% year-on-year. Acquisitions contributed growth at 15.7% and include TAMCO and our cooling platform ASPEQ in our heating platform. On an organic basis, revenues declined 2%, driven by lower sales of Hydronic equipment associated with unseasonably warm weather in our key markets. This followed a substantial increase in heating volumes the prior year period. The year-on-year decline was partially offset by higher volumes of cooling product sales, driven by continued strong customer demand for plant throughput. Segment income grew by $19.7 million or 37%. Our segment margin increased 390 basis points. Segment income and margin continued to benefit from operating leverage and higher throughput our cooling platform as well as accretion from our TAMCO and ASPEQ acquisitions. Backlog remained healthy at $306 million, up approximately 13% organically compared with the prior year end in the quarter. For the quarter in Detection & Measurement revenues increased 1.2% year-on-year with flat organic sales and a modest FX tailwind. While we achieved our…

Thanks Mark. Current market conditions are supportive of our 2024 outlook. Within HVAC, we continue to see strong demand for our cooling products across a broad set of end market applications including data centers, semiconductor plants, and industrial facilities. In heating, we continue to see solid demand associated with decarbonization, in our commercial and industrial markets. As always, residential sales are affected by weaker temperatures. In Detection & Measurement, we are experiencing uneven global demand in our short-cycle businesses. While project orders remain healthy, our customers continue to signal significant approaching demand infrastructure. In summary, I'm pleased with the solid close to 2023 and our strong full year performance. Our acquisition of Ingénia further scales our cooling platform and broadens our growth opportunities in engineered air. With a solid backlog positive operational momentum and continued demand strength in key markets, we are well-positioned to achieve our 2024 guidance and reach our SPX's 2025 targets, a year ahead of schedule. Looking ahead, I remain very excited about our future, with the right strategy and a highly capable and experienced team. I see significant opportunities for SPX to continue growing and driving value for years to come. With that, I'll turn the call back to Paul.

Thanks Gene. Operator, we will now go to questions.

Thank you. [Operator Instructions] Our first question comes from the line of Bryan Blair with Oppenheimer & Company. Your line is open Q – Bryan Blair: Thank you. Good afternoon, guys.

Hi, good afternoon. Q – Bryan Blair: Great 2023. Obviously, you came in about four times the EPS growth you initially guided. That's quite impressive. And you're obviously on pace to hit 2025, targets a year early. And all of that said, like let's nitpick to start out. The D&M results came in a bit lower than anticipated and run rate pressure that surprised us a little bit, and obviously the mix impact there I assume with radio detection that that did hit the variance for the quarter, maybe offer a little more color there and how you see run rate progression throughout 2024?

Hi, Brian I'll start out here. With respect to the run rate business, you're right we saw flat out in Q4 relative to our guide and where our expectations were for the quarter we expect and as we look into next year, we expect that remain flat as we see it today. And it is as we mentioned in our in our prepared remarks those end markets are a little bit uneven. It sort of depends on where in the world, those products are being sold into that you know that is a more global business than some of our others. US market tends to be fairly resilient. So, we feel pretty good there. But when you look outside the US and Europe in particular, you're seeing some weakness there that we hadn't originally forecasted, whether that's in the UK or on the continent. Q – Bryan Blair: Okay. I understand. So time will tell. And maybe offer a little more color on Ingénia. It seems like another great deal for your team and maybe touch on the overall fit with the [indiscernible] platform or sub platform as both and how you think about growth prospects there? And you did mention revenue contribution. What are you baking in for accretion year one?

Yeah, why don't I start there Brian and it makes sense to just step back. And I think it's been a really positive year over the past 12 months on the inorganic growth. I think we've done three great deals very TAMCO, Engineered Air Movement, ASPEQ and Electrical Heating now Ingénia [indiscernible] we actually think is really strengthen us on that. It puts us in context where we've deployed about $800 million of capital over the past 12 months, is look at it we hadn’t planned on being at the lower end of our range, 1.5 times by the end of the year. We're down about 1.3 times. Even after doing Ingenia, we also think by the end of this year we'll be down at the lower end of our range 1.5 times or less. So we feel good about where we are in the model. Specifically, about Ingenia, it's a really good company. We know the space very well. We've been tracking this space for years. Literally, I would say more than six years. I think this is the best company, we believe, in this market. They have highly automated robotics in terms of how they make the product. This actually gives them a nice advantage both in terms of lead times, but also in terms of the amount of labor and the people they have to make a product. They're much more efficient. We actually see in many cases they are less than half of certain competitors that they compete with. So really good technology. They have a really innovative software solution, which allows them to custom configure down to the very fine details what they're looking for. And they can do this much faster than their competitors. We think this gives them a lead time advantage. And…

Yeah, Bryan, this is Paul. On the accretion question, it will be accretive. Obviously, there are -- there is a higher interest burden as a result of the borrowing that took place during the first quarter, about $300 million on a revolver at a rate of 6.5% to 7%, somewhere in the middle there. And most of that, we won't start paying that down until late in 2024. On the -- you're right about the run rate revenue being around $100 million. We'll have that for a little less than 11 months, and we've said that the segment margin would be a little higher than the HVAC average. The HVAC average, according to our updated for new midpoint guidance for 2024, is about 21.75%, so something a little higher than that.

Okay. Understood. We have the breadcrumbs there, and Gene, a very helpful color on the strategic set. And Paul, you just kind of gave me the segue on HVAC margin, and I surmise this will be a key investor day topic, both HVAC and D&M. Is there any reason why at this point, given the structural enhancements to HVAC, that we should see the margin profile dip below what we've seen, new run rates and what's guided for 2024? And then on the D&M side, any reason why they should not get back to the low to mid-20s or perhaps even higher over time as platform scale?

Yeah. Bryan, I think with respect to HVAC margins, we feel very comfortable with our guide for the year. When you step back and think about the market backdrop and the capabilities we've got there, we're really in a very good position, particularly with the backlog that we're coming into the year with, and you look at the demand drivers around it. So that in combination with some of the investments we've made into the platform to help drive incremental efficiency, drive throughput, gives us confidence in those margins for 2024. So with respect to D&M, we had this mix issue in Q4, when you think about the dynamic around weakening run rate. And that was offset obviously by some of the project businesses some of these pass-through contracts that we've discussed in the past that work at a lower margin and typical for that business. As we roll into next year, we will have a little bit of this pass-through, still flowing through in the first quarter or the first half of the year, but largely those contracts will be behind us. And so when I think about that impact that was pressuring margins. When I think about our flat guide, with respect to the run rate business, there's a path back to the margin guide that we have in here which is sort of up 130 basis points year-on-year when you come to the midpoint of the guidance. So maybe I'll come back to your first question, and my response there. I think the other thing you should think about with respect to the run rate business is flat, but we're not really seeing any downward pressure on it today. So when you think about radio. And you think about some of those other businesses, given the high margins that we have and knows to the extent that that business turns up beyond where it is today, you'll see that benefit flow through on the margin side which should create incremental upside if that materializes.

Helpful detail. Thanks guys.

Thanks Bryan.

Thank you. Please standby for our next question. Our next question comes from the line of Steve Ferazani with Sidoti. Your line is open.

Good evening, everyone. On the organic …

Good evening.

On the organic growth, on each fact this quarter and you cited obviously we did have a very warm start to winter. I think the record December, but last year was pretty mild to what's the sort difference the breaking point we stop seeing the sort of the boiler sales, because I thought last winter was going to be weak. And it wasn't it was very strong if you could sort of differentiate.

Sure. Yeah. Sure. Steve, this is Paul. The last year was a little bit of a different situation. You're right about the weather. But the weather actually didn't matter last year. We had a lot an elevated level of backlog. And we were seeing supply chain and labor return to more normalized conditions, that allowed us to send out just absolutely as much as we can get out of the plant. So last year in the fourth quarter, our heating business was up by about 25% year-on-year. So we've got a weak comp this year against a very, very strong comp in the prior year.

Yeah. So I will answer that if you…

Okay. And…

Sorry go ahead, go ahead.

But what when is, miles-to-miles…

Yeah. So let me you out…

I don't know if I'm getting. Is there any way for us to predict this? And obviously December was record isn't as noted. But what's the sort of break -- I don't want to the breaking point, but the inflection point where you start really seeing an impact you've been doing this a long time. Is there any way you can sort of…

Yeah.

help us with that?

Yeah. I think it has been confusing just given that you have the dynamics of the post-COVID world, coming up against the changes in weather here. So let me run through that for you is with respect to 2024. In Q1, we're still seeing warm weather. We did have a kind of a promising cold snap at the beginning of the quarter, but then it got warmer again. So we would expect first quarter heating to be down organically. And that is actually against again a very strong comp in the prior year, where you are still living off backlog. And if I think that one was up year-on-year. Now I'm talking about first quarter of 2023 was up around 22% year-on-year. So again a weak weather quarter against a strong sort of post-COVID living off backlog quarter, if you roll forward to the fourth quarter of this year and then forecasting the fourth quarter which is our other big weather quarter, it give a normal long-term winter. So that would be up year-on-year in the fourth quarter and heating for the fourth quarter of 2024. So hopefully that helps a little bit. I think when we look at the full year, we expect some organic growth in heating, but that's really going to come more in the back half because of those dynamics.

Okay. That makes sense. That's helpful. Thanks a lot going on in there anyway.

Steve, one other data point on that, if you look at it and it's comprised the obvious right, if you look at Q4 in a track right. If you were to strip out the impact of the Hydronic business organically, we would be up mid single-digits.

Right. When I think about that does that should that indicate and that would make sense. And obviously, the hydronics business has a very good replacement market, very good cash flow, but you had a much better margin than you were expecting. Should that tell us that probably that's a typically good cash flow and less cyclical but not quite the same type margin?

Yeah. That's fair. Yeah. We've historically said that while cooling and heating or similar margin, the electrical heating side is at a higher margin than hydraulic side. That’s right.

Thanks. On Ingenia, Paul, you often like to talk about the types of multiples you pay pre-synergy and post-synergy and a lot of your success has been not overpaying. This looked like a really, really good acquisition we'll look into it and what they're doing technology wise. Can you give us any sense of them though what you paid versus your historic 13, 14 acquisitions?

So we've been historically we've talked about our average being just a little under 11 times and that includes ranges from about eight to 12. I wouldn't say it's changed all that and it really hasn't changed as a result of that. Some are very, very similar in terms of the average.

Okay. And any extension of this technology given its -- given the use of robotics and less labor-intensive and the precision of it and the extension of this technology to some of your other some cooling businesses.

And there could be in particular, our package business the level of sophistication that they have in there. Software solution is incredibly impressive and there could be very much applications of that in our packaged cooling business, which has a very similar type of a build material, bill lasers, punches so forth. So I think that very much could be I also think if you have a better solution, and you really only playing in a portion of the market. Now the key question is can you play in more the market? We actually think that's rather as I mentioned earlier another potential synergy and we have very good coverage across North America may have happened in that scenario that we think we can help them accelerate as well.

Excellent. Great. Thanks everyone.

Thanks, Steve.

Please standby for our next question. Our next question comes from the line of Walter Liptak with Seaport Research. Your line is open.

Hi. Thanks, and congratulations on a great year. So I wanted to ask a couple of follow-ons. One on HVAC and the 390 basis points of margin improvement looks great. I wonder if you could help us understand what's going on there with automation and that your go to market strategy whenever to try to improve the margins?

Yeah. I think Walt, I'll start when you look at that increase in Q4 knowing what we're forecasting into our guidance for 2024. And a lot of this is being driven by two elements the majority of it is and just the operational improvements that we've made in that business. But I kind of referenced this earlier in the call that, but the substantial investment that we've made from a capital perspective to improve the quality of the equipment in there to automate to reduce labor content on it. All of those elements have helped drive throughput in the property HVAC platform and particularly on the crewing side. In addition, I think you know certainly those last two acquisitions that are impacting 2023 and then Ingenia in 2020 for all three our operate at higher margins than the segment has traditionally operated at. So you're getting kind of a benefit from both. We haven't really quantified that with numbers, but I would say probably two thirds of it is really coming from the operating side with the balance from accretion in the quality of the businesses that we've acquired.

Okay. Now that you're at this nice level of margins. It sounds like you'll keep pushing those margins higher. What do you think the operating leverage the incremental margins will be in HVAC with some revenue growth?

So whilst historically we look for incrementals that in the 30s in HVAC what we will say is that if you do some math around our 2024 guidance you're going to see that there's a little bit of P&L investment baked in there to support some of our growth initiatives.

Okay. Great. And then just thinking about some of the good things that HVAC has done could you and core -- is it possible to incorporate some of those things into DNM to improve their profitability?

Yes, Juan I we actually feel very good about the path of the [indiscernible]. We have had very strong success at HVAC. And one of the things you're going to see at our Investor Day next month we're going to go a lot deeper and the strategy and the value creation model that both HVAC and D&M. And you're actually going to hear it from Sean McClanahan over HVAC and jobs on over detection and management. Actually feel really good about the things we're doing and I do feel like we're going to be on a good path there. So I think we're going to get a lot more detail. And I do believe we'll get back to where we've been historically in Detection & Measurement. We are a lot larger. Some of the businesses had a little bit different margin profiles go to a really good about where we go.

Okay. All right. Sounds great. And then just thinking about the D&M. business and just the flattening in the of the run rate business why did that I mean you may have said it I just didn't pick it up. Why did that business flatten out?

Well I mean really we relative to our expectations I think we saw more softness outside the US than we had originally expected. As I mentioned earlier it was primarily in Europe but you know Europe. But as you know some of those economies are weaker than we're seeing in the US. US platform has been resilient. So we feel good about that and the demand drivers behind that.

Okay, great. Okay. And then maybe a last one for me is the working capital this year looked like good. If you think about the core business can you get more working capital in 2024 a cash inflow I mean from the working capital?

Well, I would say working capital is approaching normalized levels particularly when I look at inventories. We're not entirely there yet. And I think we mentioned in the past and I still believe that's the case. It will be a kind of a two year journey 2023 and 2024. By the end of 2024, we should see it normalize. We do still see a few isolated supply chain issues particularly around printed circuit boards and other specific areas, but there's probably some incremental upside there. But we're well on our way to a normalized working capital environment.

Okay. Got it. Okay. Thanks so much.

Thanks, Walter.

Thank you. [Operator Instructions] I'm showing no further questions in the queue. I would now like to turn the call back over to Paul for closing remarks.

Thanks all for joining the call. And we look forward to seeing many of you at our Investor Day on March 26th. If you would like an invitation to attend in person please e-mail the Investor Relations email listed on our website. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.